Market stunted by low growth

ALTHOUGH it has become traditional for the leaders in the residential development and marketing sector to comment on South Africa’s budgets, Bill Rawson, chairperson of the Rawson Property Group, said that on this occasion he did so only because he has received many enquiries on the subject.

“I dislike being in any way negative about South Africa and those who know me will know that I am generally positive. However, the current budget, although largely anticipated, does leave us very little ground for being wholly positive.

“One has to accept that finance minister, Nhlanhla Nene, was faced with an incredibly difficult task and has done well.

“I had been concerned that a growing deficit in relation to GDP would unsettle the international opinion about South Africa. I am told now that in 2015/16, the GDP deficit growth will be 3,9% and that this will be cut back to 2,6% in 2016/17 and to 2,5% the following year.”

“Even though the solution apparently involves further borrowing, which will increase South Africa’s debt to R2,3 trillion in 2017/18, this move will reassure the international credit rating agencies in the short term. It will also give confidence to certain foreign investors when, as is likely to happen later this year, there is a big swing away from African investment back to the US as a result of the US Treasury raising its interest rates.”

Rawson added that South Africa could probably not have survived any further downgrading.

“If, as Nene has now ruled, the remedial measures include some not too burdensome increases in personal tax for the more affluent members of our society, that is a small price to pay for being on the right path. What many fear is that Eskom’s R360 million rescue package will prove to be inadequate and that the long term task of reinstating Eskom will take longer than the time .”

Rawson said that he and others had hoped to hear that South Africa’s very low economic growth rate would be increased and had this been possible it would certainly have been the bright spot in the current budget. Certain forecasts, he said, had put the economic growth rate for 2015/16 as high as 2,5% or even 3%. However, the minister’s forecast for 2016 is now 2% rising to 2,5% in 2017/18.

“Looking at this as a property developer and as head of an estate agency group with a national footprint, I have to accept that a lot of hard work and initiative will be required by our staff to keep the current satisfactory growth rates on track. A significant growth rate is necessary to stimulate the housing market, especially when, as is likely in the year ahead, private incomes are almost certain to be held back by the overall low growth rate. At the same time it remains true that demand for housing, especially among the lower income groups, is now at an all-time high and this has kept the market alive despite half of South Africa’s credit active population no longer being able to qualify for bond finance.”

As a representative of the resi-dential property sector, Rawson added that he and his colleagues welcome Nene’s ruling that from the 1st of March this year all transfer duty has been eliminated on property to the value of R750 000.

Although this will be accompanied by an increase in transfer duty payable for properties valued at above R3 million, it certainly will provide a stimulus in the lower sector.

“Those who pay R750 000 to R1 250 000 will pay 3% of the sales price in transfer duty. Those who pay R1 250 000 to R1 750 000 will pay R15 000 plus 6% of the value of the home. The increases continue along these lines.

“Above R3 million the tax is R145 000 plus 11% of the value of the home. This could be burdensome for those selling in the R5 million to R20 million category.”

In today’s market agents frequently report that transfer duty and conveyancing fees, along with Capital Gains Tax, on the sale of other assets such as shares cause many potential sellers and buyers to sit tight and not upgrade or downgrade.

“This is obviously bad for the housing and development sector but we can only hope that in the not too distant future we reach the stage where, as in the US, transfer duty is negligible.”